FOFA implementation may fuel practice sales
Financial planning practice mergers and acquisition consultancy Radar Results has predicted more advisers will look to sell their businesses before the Government's Future of Financial Advice (FOFA) changes take effect from 1 July, next year.
Radar Results principal John Birt said there was a belief that the new FOFA regulations would have a significant impact on authorised representatives within respective licensee groups, preventing them from moving to another licensee unless they wanted to trigger 'opt in' for their clients.
"In essence, grandfathering could be cancelled immediately when a client of a financial planner is moved to another licensee, whether it is by way of sale to another adviser, or simply a transfer to a new licensee for a better deal," he said.
Birt claimed that, on this basis, there could be a mass movement of advisers to avoid being caught by the new rules.
At the same time as pointing to the potential for a move by planners to beat the 1 July 2013, FOFA cut-in, Birt released the results of a survey conducted by his company covering the acquisition of financial planning practices.
He said the survey had revealed the most popular size of recurring revenue sought was between $100,000 and $250,000, which had been cited by 39 per cent of respondents, followed by $250,000 to $500,000 cited by 31 per cent of respondents.
There was little appetite to acquire larger practices of $500,000 to $1 million, with only 7 percent of respondents citing the range.
"When you multiply these recurring revenues by the multiple of two or three times to calculate the purchase price, a loan of between $250,000 and $1.5 million would be required to make the acquisition possible," Birt said.
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